Can I convert part-timers to contractors? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Q. Payroll taxes are hurting our bottom line. May I convert part-time bookkeepers to "1099" employees?

A. This is a common question, with dangerous implications. First off, a “1099 employee” is a misnomer. Someone is either an employee or an independent contractor. Employee wages are documented at the end of the year with IRS form W-2. Payments to independent contractors are documented with IRS form 1099. Certain payroll taxes must be withheld during the year from employee wages. Generally, no taxes are withheld from payments to independent contractors.

How you must classify someone providing service for your company is subject to keen scrutiny by the IRS and the North Carolina Department of Revenue. There is no “bright line” definition between “employee” and “contractor.”

Typically, someone who is subject to your control, uses your equipment, is paid a base wage and works primarily for you is an employee. An independent contractor, on the other hand, is self-employed, controls his own hours and manages his own risk of profit or loss.

For example, a bookkeeper that you pay to come in after hours twice a week, who provides a similar service for several other companies, may be an independent contractor. However, a part-time bookkeeper, who manages only your books and is required to report on a fixed schedule, is most likely your employee.

Leave a Comment